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Deepening negative interest rates is seen as the most likely move by the Bank of Japan (BOJ) if it were to expand stimulus, former BOJ Deputy Governor Toshiro Mutoh  said in a Reuters interview on Thursday.

Key Quotes:

it made sense for the BOJ to maintain its massive stimulus as inflation remained distant from its target.

There are too many demerits to deepening negative rates.

Even if the BOJ judged that it needs to ease, the tools available are limited. It would be hard for the BOJ to do anything more that would have a positive impact on the economy.

Japan also has little room to deploy large-scale fiscal stimulus given its huge public debt, warning against overly relying on spending packages to spur growth.

It has become politically difficult not to compile a supplementary budget. This is a problem. It raises the question of whether such policy management is sustainable.

Once Japanese government bonds lose market trust, it will become difficult for the government to freely issue debt.

Meanwhile, USD/JPY trades unmotivated below 109.50, having faced rejection near 109.70 region amid broad US dollar weakness and North Korea/ trade deal headlines.